Financial Times: Oil groups slow pace of exploration: “The combined exploration budgets of ExxonMobil, BP and Royal Dutch/Shell fell from $5.35bn in 1998 to $3.25bn last year, according to Kenneth Chew, vice-president of industry performance and strategy at IHS Energy.” (ShellNews.net)
By Kevin Morrison in London and Doug Cameron in Houston
Published: October 18 2004
The largest listed oil companies have cut spending on exploration over the past five years in favour of developing existing projects, according to a new report by IHS Energy.
The combined exploration budgets of ExxonMobil, BP and Royal Dutch/Shell fell from $5.35bn in 1998 to $3.25bn last year, according to Kenneth Chew, vice-president of industry performance and strategy at IHS Energy. Development spending rose from $16.35bn to $24.30bn over the same period.
The findings are disclosed in the annual petroleum review published today by IHS Energy, a Colorado-based services group, which recently acquired Cambridge Energy Research Associates, the consultancy group.
The research mirrors another industry study, which showed listed energy groups were maintaining greater capital discipline, with investment lagging far behind the pace seen in previous oil and gas bull markets, despite the surge in revenues from rising oil and gas prices.
The report by Connecticut-based John S Herold and Harrison Lovegrove of London forecast that high energy prices would see free cashflows vastly exceed upstream investment in 2004, as they did last year.
Funds are being diverted into dividends, share buy-backs and acquiring developed assets from the limited pool of sellers.
"We can only see [buy-backs] increasing in 2004, close to the level of spend on exploration and appraisal," said Art Smith, chairman and chief executive officer of John S Herold.
The conservative investment strategy also reflects the rising cost of finding new energy reserves, with companies devoting more of their development budgets in areas such as deep-water deposits, liquefied natural gas and exploiting the oil sands of Canada and Venezuela.
Mr Smith said global reserve replacement costs had climbed to a nominal 20-year high.
IHS Energy also noted that significantly more oil and gas resources were discovered in the 10 years to 2003 than were consumed over the same period. It said that, of the major discoveries over the past decade, 51 countries had contributed to one or more discoveries of 100m barrels oil equivalent. Some two-thirds of these discoveries were in deep water sites, such as the Gulf of Mexico and off west Africa.
However, observers also noted that exploration investment was under- recorded by the expanding role of national oil companies notably those from China, India and Brazil, which disclose fewer financial data.
These companies have become more aggressive in bidding for leases and assets outside of their home markets.
"I'm confident that in the next decade, what we consider to be NOCs will emerge on the global playing field," said Dave O'Reilly, chairman and chief executive officer of ChevronTexaco.